What happened: Mogo acquires Toronto fintech in all-stock deal
Why it matters: Acquisition gives Vancouver firm larger presence in international b2b markets, while remaining consumer-facing in Canada
A B.C. financial tech company is ponying up some dough of its own to acquire a Canadian firm it believes will help expand its international presence.
Vancouver-based Mogo Inc. (TSX:MOGO) announced November 17 plans to purchase Toronto’s Carta Solutions Holding Corp. (Carta Worlwide) in an all-stock deal worth $24.2 million.
The deal, which is expected to close in the first quarter of 2021, would see Carta’s management team and all 70 of its employees operate as a Mogo subsidiary.
Carta is a merchant payments processor that specializes in handling the backend of transactions.
For example, Carta currently supports the PayFare Mastercard in Canada, which helps Uber Technologies Inc. (NYSE:UBER) pay out drivers daily.
The company supports about 100 similar card programs worldwide.
Mogo, meanwhile, initially specialized in online lending when it went public five years.
“But we've been transitioning into a broader digital payments and digital wallet company,” president Greg Feller told BIV.
“Typically the issuer processor, which Carta is, is one of your biggest expenses as a card provider and that [acquisition] allows us to bring that margin in-house,” he said.
The acquisition deal will see Mogo continue to serve as a consumer-facing app in Canada — one focused on a portfolio of digital payments products — while Carta will help expand the new parent company’s b2b presence in Asia, Europe and the U.S.
A similar M&A play unfolded south of the border in April when San Francisco-based financial company Social Financial Inc. (SoFi) acquired payments firm Galileo Software Services Inc. in a cash-and-stock deal worth US$1.2 billion.
The biggest difference being the scale of the Mogo deal vs. that of the SoFi deal.
Feller said the broader goal for Mogo is to build it into a more robust fintech company that offers costumers more visibility of their spending in real time while making purchases.
“Credit cards today: you spend, you don't see it until the end of the month and then you get your bill and you're like, ‘Wow, how did that happen?’” he said.
“Our app is built around this idea of financial health which is, if you're more aware of your spending and more on top of it, you're going to be more mindful of your spending, and therefore more in control.”
This week’s acquisition deal comes with some stipulations over the shares issued to Carta’s shareholders in exchange for 100% of the company.
Mogo’s 10 million shares — about 18% of the company — will be put in a limited partnership, not to be distributed to shareholders until either September 22 or until the share price hits $7.45, according to Feller.
“And the reason that is that their [Carta’s] shareholders, like us, believe in the much bigger, long-term opportunity of Mogo in the value creation opportunity of combining these two businesses and giving us time to execute on that,” he said.
Mogo shares are currently trading at $2.57 As of 10:45 a.m. PT on November 19.